A Credit to Health:The Health Effects of the Earned Income Tax Credit

The opportunity to live a healthy life begins long before a
person
shows up at the doctor’s office or hospital; health begins
where people live, learn, work, and play.

Our health is not the volume of health care services we
consume. It is
outcomes, such as how long we live, or how likely we are to develop
infectious diseases or chronic conditions like diabetes or heart
problems. Improving health outcomes in Massachusetts results in large
part from the kinds of services, supports, and institutions that enable
individuals to lead healthy lives, not just in health care services and
coverage.1

Economic hardship can be an obstacle to family health. A major study
in the Journal of the American Medical Association finds the
difference
in life expectancy between the highest-income individuals and those
with the lowest incomes is 15 years for men and 10 years for women, a
gap that has widened over time.2
There is growing recognition
that greater attention to the social determinants of
health—things like having stable housing, safe, walkable
neighborhoods with accessible transportation, grocery stores with
affordable, nutritious options, schools that are equipped to provide
high-quality education, and incomes that enable families to make ends
meet —is critical to making meaningful improvements to
health.3
This paper briefly examines the health impact of one
program that provides economic support for low-income working families:
the Earned Income Tax Credit (EITC).

About the EITC

The Earned Income Tax Credit (EITC) is a refundable tax credit
that
helps lower-income working families make ends meet. It goes to families
and individuals with income from paid work, and provides benefits
primarily to workers with children. Over 400,000 tax filers in
Massachusetts claim the EITC each year.4

The Massachusetts EITC operates under the same eligibility
rules as the
federal EITC. A tax filer's federal EITC eligibility and credit value
depend on marital status, the amount of income the filer earned during
the tax year, and the number of dependent children. The Massachusetts
EITC partially matches the federal EITC, adding a credit from the
Commonwealth worth 23 percent of the federal amount.5 Simply
piggybacking on the federal credit keeps administrative costs and
complexity to a minimum, while rewarding and encouraging work.

The budgets proposed by the Governor and House for Fiscal Year
2019
would increase Massachusetts’ state match rate to 30 percent.
For 2018, that rate would have meant a maximum state credit of about
$1,038 instead of $796 for a married family with one child.6
With a 30 percent match, the Commonwealth would be on par with New
York’s match, below some states such as Vermont and New
Jersey, and more generous than several other states, such as
Maine or Rhode Island.7

Health effects for infants and children

Research has found that the EITC has an effect on
children’s
health, as observed in prenatal care, infant health, the effects of
schooling, and avoidance of illnesses and unhealthy behaviors.

Prenatal and infant health

When families don’t have enough money to make ends
meet and
provide for the basics, it can lead to negative health outcomes among
infants and children, from low birthweights to stress at
home.8
There is evidence that the EITC can mitigate some of
these outcomes. Researchers suggest EITC payments create these positive
effects because they enable parents to gain better access to prenatal
health care, which is associated with healthier habits and better
infant health.9
The alleviation of a family’s
financial stress may also contribute to these benefits for infant
health.10

While there are multiple indicators for infant health, much
research on
EITC’s effect on infant health focuses on the problem of low
birthweight (defined by the World Health Organization as less than 5
pounds 8 ounces) because it is easy to measure and has been shown to
predict longer-term health and economic outcomes.11
Infants
with low birthweights more often have longer neonatal hospital stays
and are at greater risk for infant mortality, future negative health
outcomes, and developmental delays.12
Scholars
disagree about how much EITC reduces instances of low
birthweight13
— some have found EITC has no effect on
low birthweight in certain populations14
— but many
agree that increases in EITC payments have some role in reducing
occurrences of low birthweight.

Looking at multiple years of EITC expansion, researchers found
that a
$1,000 increase in the maximum EITC reduced instances of low
birthweight by 5.6 percent overall. The effect was greater among
African-Americans, who saw a 7.2 percent reduction in the rate of low
birthweight births for every $1,000 increase of EITC income.15
One study estimates that state EITC matches across the nation reduce
the instances of low birthweight by anywhere from 4,300 to 11,850 each
year.16
This study found that infant health (specifically
birthweights, instances of low birthweight, and weeks of gestation)
improved in states that provided an additional state match to the
federal EITC. Improvements were most significant in states with larger
state EITC rates.17

Similar to reducing the incidence of low birthweights, infant
health is
also improved when more infants spend a full 39 to 40 weeks in the womb
before birth. Infants born before 37 weeks are considered preterm and
are at higher risk for illnesses.18
Increasing gestation time
reduces the risk of illnesses and reduces instances of long hospital
stays. Increasing state EITC matches are associated with average
increases in gestation time by more than a day. Although this change is
small, it is noteworthy because scholars find few factors that can
significantly increase pregnancy duration.19

School achievement

The EITC can also have positive, lasting effects on
school-aged
children. A large body of research has shown that the EITC is
associated with improved educational achievement. For instance, the
EITC has been linked to improved test scores as well as higher high
school graduation rates and college enrollment.20
Educational
attainment is also linked to better health outcomes, in large part
because of its impact on incomes.21
It is possible, therefore,
that education achievement may be one mechanism for long-term health
improvements associated with the EITC.

One study found a $1,000 increase (in 2008 dollars) of the
maximum EITC
credit in a given year significantly boosted mathematic achievement
among students. This increase was also associated with a 2.1
percentage-point increase in the likelihood students would graduate or
receive a General Education Diploma (GED) by age 19. It also increased
the probability, by 1.4 percentage-points, that students would complete
one or more years of higher education by age 19.22

A credit worth about $3,000 (in 2005 dollars) during a
child’s early years could boost his or her achievement at the
same rate as two extra months of schooling.23

Researchers found that the timing of the tax credit also
is
important — tax refunds in the spring of the high school
senior year, particularly when students are finalizing higher education
decisions, can increase college enrollment slightly.24

Physical and behavioral
health

Increase in EITC amounts have been associated with healthier
child
behavior in the short term. Researchers used an index that measured
behaviors such as peer conflict and anxiousness or depression and found
that, over a two-year period, children in families with larger EITC
payments saw improvements in their behavioral index scores.25
Further, the EITC may also alleviate stress-related behavior that hurts
children by helping parents afford better childcare arrangements.26

Scholars find that adult onset of diseases, such as heart
disease, are
often linked to hardships suffered as a child.27
Research
suggests that, over the long term, children whose families receive more
income from refundable tax credits are more likely to avoid early onset
of disabilities and other illnesses associated with low family income.28

Effects on adult health and neighborhoods

In addition to improving children’s health, the EITC
has been
shown to improve the health of adult family members, especially
parents. In 1993, the EITC for the first time provided larger benefits
to families with two children than those with one child. Studies
subsequently found greater increases of self-reported health of
EITC-eligible mothers with two children relative to those with
one. The expansion of EITC benefits was also associated with
mothers’ improved blood pressure, heart rate, cholesterol,
and inflammation levels.29

Mothers who were eligible for EITC increases in the 1990s,
were better
able to pursue healthy activities, and more likely to receive prenatal
care.30
Similarly, EITC-eligible households are found to spend
relatively more on healthy foods like fruits and vegetables during the
months when most EITC benefits are paid.31

The EITC also benefits health across entire neighborhoods in
places
with a high concentration of households receiving the credit. By
increasing economic activity in these neighborhoods, research finds a
higher state and local EITC rate was associated with fewer babies born
with low birthweight even for residents who do not receive the credit.
Researchers believe these neighborhood-wide benefits where many parents
receive the EITC may be the result of reduced stress, less crime, and
other benefits that spill over across the neighborhood when many
low-income working families are better able to make ends meet.32

Health outcomes are shaped not just by healthcare received, but by the
conditions in which people live, which can be shaped by family incomes.
The evidence suggests that increasing incomes of low-income working
families through the EITC can not only help families make ends meet,
but can also have long-term effects on community health.

Jennifer Sullivan at the Center on Budget and Policy Priorities
contributed to this report. The authors also gratefully acknowledge
input on an earlier draft from Allison Bovell-Ammon at
Children’s Health Watch, and Samantha Waxman and Erica
Williams at the Center on Budget and Policy Priorities. Any mistakes
are the authors own.

5During the 2016 tax year (with tax filing due April 2017),
the average Massachusetts federal EITC was $2,889 for a family with
children. For the relatively few recipients without children, the
average annual federal benefit was $293, according to IRS data obtained
by the Center on Budget and Policy Priorities. With the 23 percent
Massachusetts match, the average EITC for a family with children, the
combined state and federal EITC was an average of $3,553 – a
$296 monthly boost to wages. For federal averages see, Center on Budget
and Policy Priorities, “Policy Basics: The Earned Income Tax
Credit” (April 2018).

6Based on federal EITC credit for a married family with one
child of $3,461. A married family with two or more children would
receive maximum federal credits of $5,716 and $6,431 respectively. See
Erica Williams, “Policy Basics: The Earned Income Tax
Credit,” Center on Budget and Policy Priorities (April 2018).